-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQAbykM6AuQ2GXA01MaDlFzku6wgtD0ogC+U5bsDk4SvCK3kY3nCK5NTcSo5KM0h 9WAtBEvpA+R4mkJ0f64N3g== 0000710983-96-000006.txt : 19960410 0000710983-96-000006.hdr.sgml : 19960410 ACCESSION NUMBER: 0000710983-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951229 FILED AS OF DATE: 19960209 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QMS INC CENTRAL INDEX KEY: 0000710983 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 630737870 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09348 FILM NUMBER: 96514561 BUSINESS ADDRESS: STREET 1: ONE MAGNUM PASS CITY: MOBILE STATE: AL ZIP: 36618 BUSINESS PHONE: 3344336300 MAIL ADDRESS: STREET 1: ONE MAGNUM PASS CITY: MOBILE STATE: AL ZIP: 36618 FORMER COMPANY: FORMER CONFORMED NAME: QUALITY MICRO SYSTEMS INC DATE OF NAME CHANGE: 19840816 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 29, 1995 ---------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission file number 1-9348 ------ QMS, INC. - ---------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 63-0737870 - ---------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) ONE MAGNUM PASS, MOBILE, AL 36618 - ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (334) 633-4300 - ---------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - ---------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ----------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's common stock, as of the latest practicable date 10,676,815 AT JANUARY 26, 1996. - ------------------------------- QMS, INC. AND SUBSIDIARIES ========================== INDEX -----
PART I - FINANCIAL INFORMATION PAGE NUMBER --------------------- ----------- Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) as of December 29, 1995 and September 29, 1995 3 - 4 Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 29, 1995 and December 30, 1994 5 Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 29, 1995 and December 30, 1994 6 Notes to Condensed Consolidated Financial Statements (unaudited) for the three months ended December 29, 1995 and December 30, 1994 7 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 PART II - OTHER INFORMATION 12 - 13 ----------------- Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. (a) Exhibits (b) Reports on Form 8 - K SIGNATURES 14
QMS, INC. AND SUBSIDIARIES ========================== PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS as of December 29, 1995 and September 29, 1995
(Unaudited) December 29, September 29, in thousands 1995 1995 - ---------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 554 $ 7,431 Trade Receivables (less allowance for doubtful accounts of $401 at December 1995 and $546 at September 1995) 24,785 37,721 Notes Receivable 4,833 0 Inventories, Net (Note 3) 35,516 47,482 Other Current Assets 5,286 7,066 --------- --------- Total Current Assets 70,974 99,700 PROPERTY, PLANT AND EQUIPMENT 61,834 69,205 Less Accumulated Depreciation 39,456 42,484 --------- --------- Property, Plant and Equipment, Net 22,378 26,721 OTHER ASSETS 11,218 9,117 --------- --------- TOTAL ASSETS $ 104,570 $ 135,538 ========= =========
- -------- See Notes to Condensed Consolidated Financial Statements QMS, INC. AND SUBSIDIARIES ========================== CONDENSED CONSOLIDATED BALANCE SHEETS as of December 29, 1995 and September 29, 1995
(Unaudited) December 29, September 29, in thousands 1995 1995 - ---------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 13,215 $ 16,586 Short-Term Bank Loans 0 7,764 Revolving Credit Loan and Short-Term Debt (Note 4) 18,110 4,129 Other 24,711 35,710 --------- --------- Total Current Liabilities 56,036 64,189 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 4) 744 25,630 DEFERRED INCOME TAXES 1,129 1,162 OTHER LIABILITIES 2,792 1,344 STOCKHOLDERS' EQUITY 43,869 43,213 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,570 $ 135,538 ========= =========
- -------- See Notes to Condensed Consolidated Financial Statements QMS, INC. AND SUBSIDIARIES ========================== CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended December 29, 1995 and December 30, 1994 (Unaudited)
Three Months Ended ------------------ December 29, December 30, in thousands, except per share amounts 1995 1994 - ---------------------------------------------------------------------------- NET SALES Printers and Supplies $ 29,447 $ 63,039 U.S. Service 7,898 7,481 ----------- ----------- Total Net Sales 37,345 70,520 ----------- ----------- COST OF GOODS SOLD Printers and Supplies 20,292 43,297 U.S. Service 4,636 4,549 ----------- ----------- Total Cost of Goods Sold 24,928 47,846 ----------- ----------- GROSS PROFIT Printers and Supplies 9,155 19,742 U.S. Service 3,262 2,932 ----------- ----------- Total Gross Profit 12,417 22,674 ----------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,973 21,643 ----------- ----------- OPERATING INCOME 1,444 1,031 ----------- ----------- OTHER INCOME (EXPENSE) Interest Income 79 13 Interest Expense (574) (924) Miscellaneous Income (Expense) (330) (20) ------------ ------------ Total Other Expense (825) (931) ------------ ------------ INCOME BEFORE INCOME TAXES 619 100 INCOME TAX PROVISION 0 28 ----------- ----------- NET INCOME $ 619 $ 72 =========== =========== EARNINGS PER COMMON SHARE (Note 2) Primary & Fully Diluted $ 0.06 $ 0.01 SHARES USED IN PER SHARE COMPUTATION (Note 2) Primary 10,677 10,726 Fully Diluted 10,679 10,726
See Notes to Condensed Consolidated Financial Statements QMS, INC. AND SUBSIDIARIES ========================== CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended December 29, 1995 and December 30, 1994 (Unaudited)
December 29, December 30, in thousands 1995 1994 - ----------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $ 619 $ 72 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation of Property, Plant and Equipment 1,424 2,184 Amortization of Capitalized and Deferred Software 1,082 2,783 Provision for Losses on Inventory 609 900 Other 20 4 Net Change in Assets and Liabilities that Provided (Used) Cash 9,892 (2,112) ---------- ---------- Net Cash Provided by Operating Activities 13,646 3,831 Cash Flows from Investing Activities: Purchase of Property, Plant and Equipment (294) (2,499) Additions to Notes Receivable (7,500) 0 Additions to Capitalized and Deferred Software Costs (1,535) (2,425) Proceeds from Divestiture of Businesses 7,668 0 Other (252) 46 ----------- --------- Net Cash Used in Investing Activities (1,913) (4,878) Cash Flows from Financing Activities: Proceeds from Long-Term Debt and Capital Leases 12,727 700 Payments of Long-Term Debt and Capital Leases, including Current Maturities (23,611) (709) Payments of Notes Payable (7,764) 0 Other 156 30 ---------- --------- Net Cash Provided by (Used in) Financing Activities (18,492) 21 Effect of Exchange Rate Changes on Cash (118) (115) ----------- ---------- Net Change in Cash and Cash Equivalents (6,877) (1,141) Cash and Cash Equivalents at Beginning of Period 7,431 4,956 ---------- --------- Cash and Cash Equivalents at End of Period $ 554 $ 3,815 ========== =========
See Notes to Condensed Consolidated Financial Statements QMS, INC. AND SUBSIDIARIES ========================== NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 29, 1995 AND DECEMBER 30, 1994 (Unaudited) 1. MANAGEMENT OPINION In the opinion of management, the condensed consolidated financial statements reflect all adjustments necessary to present fairly the financial position of the Company as of December 29, 1995 and September 29, 1995, the results of operations for the three months ended December 29, 1995 and December 30, 1994 and changes in cash flows for the three months ended December 29, 1995 and December 30, 1994. All adjustments included in the condensed consolidated financial statements are of a normal recurring nature except for amounts related to the restructuring reserves (see Note 5) and reclassification of the revolving credit loan and senior secured notes payable from long-term to short-term debt (see Note 4). The results of operations for the three months ended December 29, 1995 are not necessarily indicative of the results to be expected for the fiscal year ending September 27, 1996. 2. PER COMMON SHARE COMPUTATIONS Per share computations are based on the weighted average number of common shares outstanding during the period and the dilutive effect of the assumed exercise of stock options. 3. INVENTORIES Inventories at December 29, 1995 and September 29, 1995 are summarized as follows (in thousands):
December 29, September 29, 1995 1995 ----------- ------------- Raw materials $ 8,959 $ 11,709 Work in process 1,676 3,152 Finished goods 32,840 43,453 Inventory reserve (7,959) (10,832) ---------- ----------- TOTAL $ 35,516 $ 47,482 ========== ===========
4. CLASSIFICATION OF REVOLVING CREDIT LOAN AND SENIOR SECURED NOTES PAYABLE The Company reclassified its revolving credit loan and the senior secured notes payable from long-term to short-term debt as of December 29, 1995 only to comply with FASB Emerging Issues Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Arrangements That Include a Subjective Acceleration Clause and a Lock-Box Arrangement." This pronouncement was issued in November 1995 and the Company is currently negotiating with the lender to modify the revolving credit agreement in such a manner as to permit classification of these loan obligations as long-term debt. The revolving credit agreement is for a three-year period and the Company was in full compliance with all the covenants of this agreement as of December 29, 1995. 5. COMMITMENTS AND CONTINGENCIES At September 29, 1995, the Company had a commitment of approximately $13.2 million under contracts to purchase print engines. As of December 29, 1995, the Company had a commitment of approximately $18.4 million to purchase print engines under purchase contracts. The Company was contingently liable for approximately $785,000 as of December 29, 1995. This was principally the result of letters of credit issued in the normal course of business for the purchase of inventory. 6. RESTRUCTURING RESERVES At September 29, 1995, the Company had reserves for restructuring charges and business divestitures totaling $10.1 million. During the first quarter of fiscal 1995, total net charges of $5 million were taken against these reserves leaving a balance of $5.1 million at December 29, 1995. 7. RECLASSIFICATIONS Certain reclassifications have been made to fiscal 1995 amounts to conform to the fiscal 1996 presentation. QMS, INC. AND SUBSIDIARIES ========================== PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Net Sales Comparisons for Key Channels of Distribution (in thousands)
First Quarter ended ----------------------------------------------------- December 29, December 30, 1995 1994 Difference --------- --------- ------------ U.S. Direct $ 12,737 $ 19,370 $ (6,633) U.S. Service 7,898 7,481 417 U.S. Reseller 4,775 4,780 (5) Europe 5,108 25,250 (20,142) Japan 2,502 6,851 (4,349) Canada 3,081 4,365 (1,284) QMS Circuits 873 875 (2) All Other 371 1,548 (1,177) ---------------------------------------------------- Total $ 37,345 $ 70,520 $ (33,175) ====================================================
Net sales for the first fiscal quarter of 1996 declined by $33.2 million from the first quarter of fiscal 1995. Sales by key distribution channels in the first quarter of fiscal 1996 (the three months ended December 29, 1995) and the first quarter of fiscal 1995 (the three months ended December 30, 1994) are shown in the above table. The principal reason for the sales decline is the change in the methods of doing business in Europe and Japan. The combined sales decline in these two channels represents $24.5 million, or 74%, of the total decline. The Company has completed the divestiture of its European and Japan business operations to management buy-out groups and has established exclusive master distributor agreements with the new owners of these businesses to continue marketing QMS products in their respective geographic territories. The Company recognizes revenue on sales of components and controller boards to these master distributors and, additionally, commissions are earned by the Company on all sales of QMS products made by them. As a result, the amount of revenue recognized through these sales channels will be significantly reduced. Net sales declined in the U.S. direct sales channel by $6.6 million in the first quarter of fiscal 1996 compared to the first quarter of fiscal 1995. The principal reason for this decline is that the first quarter of fiscal 1995 included $4 million in sales of color thermal transfer consumables, representing a product line that was sold during the fourth quarter of fiscal 1995; accordingly, there were no sales of these products in the first quarter of fiscal 1996. Total gross margin declined by $10.3 million in the first quarter of fiscal 1996 compared to the first quarter of fiscal 1995. Of this decline, $8 million results from the change in the methods of doing business in Europe and Japan, as discussed above. The remainder of the decline in gross profit of $2.3 million is principally the margins on sales of color thermal transfer consumables which are not included in the product mix in the first quarter of fiscal 1996. Overall, the Company's gross profit as a percentage of net sales increased by 1%, from 32.2% to 33.2%. This increase is due to the larger relative amount of U.S. service revenues included in the product mix in the first quarter of fiscal 1996 compared to the same period in fiscal 1995 and the increase in gross profit as a percentage of net sales in this channel from 39.2% in the first quarter of fiscal 1995 to 41.3% in the first quarter of fiscal 1996. The Company purchases print engine mechanisms and memory components from several Japanese suppliers. Fluctuations in foreign currency exchange rates will affect the prices of products. The Company attempts to mitigate possible negative impacts through yen-sharing arrangements with suppliers, foreign exchange contracts and price negotiations; however, material price increases resulting from exchange rate fluctuations could develop which would adversely affect operating results. Selling, general and administrative expenses declined from $21.6 million in the first quarter of fiscal 1995 to slightly below $11 million in the first quarter of fiscal 1996. This decrease of $10.7 million is the result of the change in the methods of doing business in Europe and Japan which eliminated $6.6 million of expenses associated with these former operations; the remaining $4.1 million results from cost reduction and restructuring efforts were implemented during the latter part of fiscal 1995. This $10.7 million decrease was greater than the decrease in gross profit of $10.3 million for the same periods and, therefore, resulted in an improvement in operating income of $0.4 million. Total other expense decreased from $931,000 in the first quarter of fiscal 1995 to $825,000 in the first quarter of fiscal 1996. Included in this decrease is a reduction of interest expense of $350,000 in the first quarter of fiscal 1996 compared to the first quarter of fiscal 1995 that is the result of the Company reducing its overall short- and long-term debt from $38.8 million at September 29, 1995 to $19.7 million at December 29, 1995. The Company's effective tax rate was zero for the first quarter of fiscal 1996 compared to 28% in the first quarter of fiscal 1995. Due to the availability of operating loss carry forwards and tax credits, the Company does not anticipate incurring any additional tax expense during fiscal 1996. FINANCIAL CONDITION - ------------------- The decrease in cash and cash equivalents from approximately $7.4 million at September 29, 1995 to $554,000 at December 29, 1995 is related to revised cash management processes that were implemented as part of the new credit facility with Foothill Capital Corporation (`Foothill''). This credit facility provides for a direct flow of the Company's cash receipts to Foothill and a simplified method of re-borrowing funds from Foothill to meet working capital requirements. The decreases in trade accounts receivable of $12.9 million, in inventories of $12 million, in property, plant and equipment of $4.3 million, in trade accounts payable of $3.4 million, in short-term bank loans of $7.8 million, and in other current liabilities of $11 million at December 29, 1995 compared to September 29, 1995 are principally the result of the divestitures of the Company's European and Japanese operations. The increases in notes receivable (short-term) of $4.8 million and other non- current assets of $2.1 million at December 29, 1995 compared to September 29, 1995 represent notes due from the purchasers of the Company's business operations in Europe ($4.0 million) and Japan ($3.5 million). LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the first quarter of fiscal 1996, the Company's working capital and capital expenditure requirements came principally from operations, the proceeds from the disposition of its business operations in Europe and Japan, and borrowings under its new credit facility with Foothill. The Company's net working capital as of December 29, 1995 was approximately $14.9 million compared to $35.5 million at September 29, 1995. This reduction is principally due to the disposition of the European and Japanese operations, the change in the Company's cash management processes under the Foothill credit facility, as discussed earlier, and the reclassification of the revolving credit loan and senior secured notes payable from long-term to short-term debt, as discussed below. At December 29, 1995, borrowings under the Foothill credit facility were $12.7 million and borrowing capacity under this three-year credit facility totaled $18.2 million, plus the availability of a $5 million term loan. The Company was in compliance with all of the Foothill debt covenants. At December 29, 1995, the Company was not in compliance with certain covenants contained in the 6.15% senior secured notes payable. Although the Company has not received a waiver of the non-compliance, the holder of the senior secured notes has not taken steps to accelerate repayment of this debt and, in management's opinion, the status of this debt is unlikely to change. The Company has adequate borrowing capacity available as a term loan under the Foothill credit facility to repay the senior secured notes in the unlikely event these notes are deemed due. In November 1995, the FASB Emerging Issues Task Force released Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Arrangements That Include a Subjective Acceleration Clause and a Lock-Box Arrangement" which required the Company to reclassify its revolving credit loan and the senior secured notes payable from long-term to short-term debt as of December 29, 1995. The Company is currently negotiating with the lender to modify the revolving credit agreement in such a manner as to permit classification of these loan obligations as long-term debt. Management believes that the Company's continuing working capital and capital expenditure requirements will be met by cash flow from operations and borrowings under the Foothill credit facility. QMS, INC. AND SUBSIDIARIES ========================== PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS - -------------------------- The Company is a defendant in various litigation in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company's financial position or results of operations. ITEM 2 - CHANGES IN SECURITIES - None. - ------------------------------ ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- At December 29, 1995, the Company was not in compliance with certain covenants contained in the 6.15% senior secured notes payable. Covenant violations include noncompliance with minimum net income requirements and interest coverage. Although the Company has not received a waiver of the non-compliance, the holder of the senior secured notes has not taken steps to accelerate repayment of this debt and, in management's opinion, the status of this debt is unlikely to change. The Company has adequate borrowing capacity available as a term loan under the Foothill credit facility to repay the senior secured notes in the unlikely event these notes are deemed due. The Foothill credit facility is a three-year agreement and the Company was in full compliance with all of the covenants in this agreement as of December 29, 1995. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ The Company's Annual Meeting of Stockholders was held on January 23, 1996. The results of the voting on the election of directors were as follows:
Nominee For Withheld Total Votes Cast ------- --- -------- ---------------- Charles D. Daley 9,503,993 243,277 9,747,270 Michael C. Dow 9,503,398 243,872 9,747,270 S. Felton Mitchell, Jr. 9,517,428 229,842 9,747,270 Accordingly, all nominees for the Board of Directors were elected. The results of the voting on the Company's Employee Stock Purchase Plan were as follows: For Against Abstain --- ------- ------- 9,400,720 278,058 68,492
Accordingly, the Employee Stock Purchase Plan was adopted. ITEM 5 - OTHER INFORMATION - None. - -------------------------- ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits: Exhibit Number Description ------ ----------- 27 Financial Data Schedule (b) Reports: The report listed below was filed on Form 8-K/A during the first quarter of fiscal 1996. . Form 8-K/A dated October 31, 1995 reporting pro forma financial statements reflecting the disposition of the Company's operational assets in Europe and Japan. QMS, INC. AND SUBSIDIARIES ========================== SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QMS, INC. (Registrant) Date: February 9, 1996 /s/ Philip R. Cahoon ---------------------------- -------------------------- PHILIP R. CAHOON Corporate Controller, Vice President - Finance and Administration, and Assistant Secretary (Mr. Cahoon is an officer of the Company and has been duly authorized to sign on behalf of the registrant.) EX-27 2
5 0000710983 QMS INC 1000 3-MOS SEP-27-1996 DEC-29-1995 554 0 25186 401 35516 70974 61834 39456 104570 56036 0 0 0 118 43751 104570 37345 37345 24928 24928 10973 609 574 619 0 619 0 0 0 619 .06 .06
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